Analysing the TPP: big benefits or big trouble?

January 2016 | FEATURE | GLOBAL TRADE

Financier Worldwide Magazine

January 2016 Issue

Hailed in many quarters as a major transformational trade deal, the Trans-Pacific Partnership (TPP) agreement – the largest regional trade accord in history – has nevertheless sharply divided opinion since its signing by 12 Pacific Rim nations in October 2015.

Over seven years in the making and described by US Trade Representative Michael Froman as an “ambitious, comprehensive, high standard and balanced agreement”, the TPP seeks to lower trade barriers, establish a common IP framework and introduce an investor-state dispute settlement mechanism, among many other pact agreements.

The countries involved in the TPP – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the US and Vietnam – collectively account for 40 percent of the world’s total GDP ($107.5 trillion), 26 percent of its trade, and 793 million of its consumers. But the TPP has excluded China – a deliberate move designed to dilute the trade dominance of that country in East Asia, with India also falling into this category.

TPP proponents, such as the Trade Benefits America Coalition, a group of more than 275 associations, businesses and agricultural groups, describe the TPP as having “significant potential to expand US trade opportunities with some of the world’s fastest growing markets – to the benefit of American businesses, farmers, and workers”. Outside the US, the agreement is expected to be similarly advantageous, with Vietnam, a low-wage economy which relies on exports, considered to be a substantial beneficiary due to the TPP’s slashing of around 18,000 tariffs.

Detractors, however, have concerns over the lack of transparency surrounding how the negotiations were conducted as well as a likely imbalance in the prospective influence of the nations involved – the US and Japan wield a somewhat greater degree of trading power than some of the other TPP members. Another of the key issues is that with an agreement as big and as complex as the TPP, which is larger than the North American Free Trade Agreement (NAFTA), there needs to be an understanding of how it affects existing regulations and prevalent practices and contract terms, something the think-tank Public Citizen believes is largely unclear at present.

That said, the TPP will not go unscrutinised in the months and years ahead as the agreement is set to receive considerable attention from Congress, as well as separate legislative scrutiny from the other 11 nations, all of which need to approve the TPP independently. President Obama, confident that Congress, which has an up-or-down vote, will ratify the agreement, called the TPP “a win for our workers, our businesses and our middle class” in a Bloomberg op-ed in November 2015.

Far-reaching with a complex set of commitments, the TPP and the reaction to it, whether harmonious or hostile, undoubtedly has major implications for global trade.

TPP: a milestone in global trade?

Among the assertions made by advocates of the TPP is that the agreement between the 12 Pacific Rim nations represents a ‘milestone in global trade’, which reflects the intent and scope of the agreement. “The TPP is a global trade milestone in that it covers roughly 40 percent of global GDP and provides a template for future agreements,” says Kevin O’Brien, a partner at Baker & McKenzie. “It represents the most important trade agreement since the Uruguay Round WTO Agreements and NAFTA, both of which took effect in the mid-1990s. The TPP consists of 30 chapters and covers broad subject areas, ranging from market access to labour and environmental protections, to intellectual property, to transparency and anti-corruption provisions, and many others. It is a sweeping agreement designed for the 21st century.”

Until the situation is reversed, the lack of transparency will arguably reduce public approval of the TPP.

While recognising that the TPP is a major global trade deal due to the combined trading power of the parties involved, Jeremy Malcolm, a senior global policy analyst at the Electronic Frontier Foundation (EFF), is not without reservations. “The TPP is being lauded as the most significant trade agreement in the post-WTO era – along with the Transatlantic Trade and Investment Partnership between the US and Europe – but we have to remember that there is a significant imbalance in trading power, with the US and Japan dwarfing some of the other members,” points out Mr Malcolm. “This gives them an oversized influence in the negotiations, and other countries with little clout may have to take whatever is on offer.”

An imbalance there may be, but pro-TPP observers are quick to point out that the agreement is expected to add $223bn a year to incomes of workers in all 12 countries, of which $77bn will go to US workers.

TPP detractors

TPP detractors, such as the EFF, have been quick to criticise the agreement for its clandestine nature – a global trade accord characterised by a lack of transparency and little public oversight or input. However, for Mr O’Brien it is a matter of balance. “The practicality of negotiating a complex set of commitments had to be balanced with the extent to which the negotiations could be publicly conducted,” he says. “Opponents and supporters of the TPP have every right to review and carefully consider each and every provision, and I believe that many if not all TPP members expect an extensive debate now that the texts have been made public.”

Until the situation is reversed, the lack of transparency will arguably reduce public approval of the TPP. “People are naturally suspicious of agreements negotiated in private, and rightly so,” says Mr Malcolm. “We see many other international agreements that are negotiated much more openly and with more opportunity for public input. For example, at the United Nations, non-governmental observers are welcome to observe and even speak during some text negotiations.”

Objections at the US end

In a bid to make ratification of the TPP by Congress a relatively pain free process, president Obama has been banging the drum for the agreement far and wide. Cautious has been the response of Congress to the TPP thus far, among both Democrats and Republicans, ahead of months of review and consultation. “One of the most-commonly cited reasons for caution is that the deal won’t help American workers as much as it helps our trading partners,” vouches Jeremy Malcolm. “A free trade absolutist would argue that the country is still better off by lowering the costs of its imports, and that the local jobs will be regained elsewhere, but this is a tough sell politically. Of course, the other 11 TPP countries are having similar discussions.”

Ramping up his efforts to convince Congress as well as the American public, Mr Obama said that the TPP agreement was “the right thing for the US economy” and would help “restore America’s promise for decades to come”.

Missed opportunities

A trade agreement as sizeable and complex as the TPP has a ready-made army of detractors lying in wait to find fault and pull things apart. Many of these criticisms appear well-founded, including accusations of excessive secrecy surrounding negotiations and charges of corporate cronyism. More specifically, the decisions made by trade ministers in terms of data protection length have been met with considerable scorn.

Concerned about the impact that this has on the future prospects for innovation is John Castellani, president and CEO of the Pharmaceutical Research and Manufacturers of America (PhRMA), one of many organisations that view this aspect of the TPP as a missed opportunity to encourage innovation. “Strong intellectual property protection is necessary for the discovery and development of new treatments and therapies for the world’s patients,” he says. “We are disappointed at the failure of trade ministers to secure 12 years of data protection for biologic medicines, which represent the next wave of innovation in our industry. This term was not a random number, but the result of a long debate in Congress, which determined that this period of time captured the appropriate balance that stimulated research but gave access to biosimilars in a timely manner.”

Further criticism of the agreement, which has so far been substantial, has come from a variety of sectors and industries. Tom Buffenbarger, president of the International Association of Machinists and Aerospace Workers (IAM), recently described the TPP as having “failed to deliver” on essentially all matters of immediate relevance to American working families and their communities.

Measuring TPP success across the TPP nations

Having taken seven years to come to fruition via intensive and complex negotiations, discussions, meetings, consultations and deliberations, not to mention compromise and diplomacy, the chances of the TPP successfully establishing a 21st century trade agreement that unleashes economic growth and trade in Asia are promising. Whether this proves to be true or not, what is vague and largely undiscussed is how the success of the TPP can be measured across the 12 TPP nations and to what timetable. “Once enacted, the TPP should significantly enhance trade among the member countries. At the same time, the approach taken in the TPP may well form a basis for future agreements within and outside of the WTO framework. For example, the IP provisions go beyond the current TRIPs WTO agreement in many respects and provide important protections in the areas of patents, trademarks, copyrights and trade secrets,” says Mr O’Brien.

Further enhancing the prospects for TPP success are the important improvements being incorporated into the ISDS commitments which provide for faster, more transparent proceedings in which interested third parties and the public will have increased access.

However, it is notoriously difficult to measure the success of a trade agreement at the best of times, as gains and losses are widely distributed and controlling for independent variables is next to impossible. “If you ask 10 economists about net value of NAFTA, for example, you will get 10 very different answers”, suggests Mr Malcolm. “Although the other countries have been required to adopt a US-compatible IP system, actually it is not as harmonised as it may appear. The works protected under copyright, for example, will still vary markedly in each country despite the notional adoption of a uniform life plus 70 year copyright term. The US gave ground in other areas, such as internet intermediary liability rules, also allowing countries to continue to operate different systems. This makes it unlikely that there will be any significant increase in trade attributed to the IP framework and investor-state provisions,” he concludes.

Conclusion

Despite being lauded as a ‘foundation stone for future global prosperity’ and the major trade initiative of the Obama Administration, the early reception given to the TPP was decidedly lukewarm, especially on Capitol Hill. As negotiations continue toward achieving full legislative endorsement across each of the 12 TPP nations, as well as there being an expectation that China will join the agreement sooner rather than later, with the Philippines also expressing an interest, for the moment the question remains: will the TPP turn out to be a global trade milestone or millstone?